Tax Debt Relief: What is it, Attorneys, Benefits, and More
Tax debt relief is a term used to describe the process of reducing or eliminating tax debt. There are several ways this can be done, several techniques and methods, as well as a huge number of companies and debt specialists. In this guide, we’ll ask and answer questions like:
- What is Tax Debt Relief?
- How Does it Work?
- What are the Benefits?
- How Much Does It Cost?
- What Sort of Settlement Can I Expect?
How Does Tax Debt Relief Work?
Tax debt relief is designed to help individuals who have fallen behind on their taxes and need a little financial assistance. They can work with the IRS, or with a tax relief company, to create payment plans and find other solutions.
These payment plans work just like any other: You agree to pay a set amount every month. The difference is that failing to pay won’t result in a delinquency, collections, and possible difficulty. This is the IRS we’re talking about. If you fail to pay the government can exercise the sort of power that debt collectors only wish they had and there will be no escaping it.
Is Tax Debt Relief a Scam?
Asking whether tax debt relief is a scam is like asking whether PayPal or Western Union is a scam. At its heart, it’s a necessary service operated by experienced, licensed individuals. However, there are a few bad apples in the bunch, companies who see desperation and hardship as an opportunity to scam, not to help.
It’s important, therefore, that you do your due diligence and make sure the company you’re working with is licensed and genuine. Look for reviews and accreditations; read testimonials; check with the BBB.
How Much Does Tax Debt Relief Cost?
Costs vary depending on the company used. If you choose to do it yourself then you may qualify for something known as an Offer in Compromise. This is provided to debtors who have a large amount of tax debt that they are unable to pay without suffering great financial hardship.
To apply for an Offer in Compromise you need to send 20% of the offer amount in addition to a nonrefundable fee of $186.
Many debtors choose to work with specialized lawyers, in which case the costs can be much higher. In any case, the amount of money, time, and stress you can save is usually worth the cost of this service.
What are the Benefits of Tax Debt Relief?
Tax debt relief can provide the following benefits:
- Pay less than you owe
- Buy yourself more time
- The government will not garnish your wages
- Liens will be removed
How Much will the IRS Settle for?
The IRS receives around 70,000 Offers in Compromise every year, of which they accept around 30,000, with an average of around $6,500. Of course, the average doesn’t mean anything if you don’t know what the original amounts were, but it’s hard to put a number on this as they settle based on an individual’s debt and circumstances, two things that can differ greatly.
Can Tax Debt be Forgiven?
As mentioned above, you can have your tax debt partially forgiven via an Offer in Compromise. It’s also possible to have your debt frozen if you become unemployed and are unable to repay any of it at that moment in time.
Do Tax Debt Relief Companies Work?
There are a lot of things to consider with regards to tax debt. Can you submit an Offer in Compromise, can your account be frozen, will they settle for an installment plan? If you’re new to all of this, it can seem daunting. That’s where a tax debt relief company comes in. Yes, they can be costly, and they are essentially doing something that you can do yourself, but at the same time, they are more experienced and knowledgeable than you and can potentially make a bigger impact.
Can Tax Debt be Forgiven in Chapter 7 Bankruptcy?
This is a complicated one. Firstly, taxes that you tried to avoid via fraud or deception cannot be discharged in bankruptcy. However, it may be possible to discharge tax debt with a Chapter 7 Bankruptcy if the following conditions are met:
- The taxes are related to income (as opposed to fees and penalties)
- It is at least three years old
- You filed a return at least two years before filing for bankruptcy
- The debt was assessed at least 240-days before filing or has yet to be assessed.
Can Tax Debt be Forgiven in Chapter 13 Bankruptcy?
Whether your tax debt can be discharged or not will depend on when you filed and whether or not the debt is classed as secured, unsecured, or priority.
If it’s unsecured, it can be discharged if it meets the same terms as discussed in the Chapter 7 Discharge above. If it is priority, then it needs to be paid. With a secured debt, it’s a little more complicated, but generally, you will need to pay it off lest your property be repossessed.
Can you Refuse to Pay Taxes?
You can, in the same way that you “can” rob a bank, but we wouldn’t recommend it. Refusing to pay tax is tax evasion, which is illegal. The government doesn’t care why you don’t pay, whether you’re making a political statement or just want more money—it’s all the same to them.
The IRS doesn’t prosecute citizens who make honest mistakes and they are willing to work with everyone who owes a tax debt. If you blatantly refuse to work with them, however, and you intentionally evade your taxes, then they may take legal action against you.
Will Tax Debt Go Away?
We would never recommend not paying tax or waiting for it to go away, but just like unsecured debts, it does have a time limit. The IRS has 10 years to collect the debt from the moment it is created. This time period is extended, however, when you file an Offer in Compromise or file for bankruptcy.